New electronic payment system could catch on in government

Dwolla, an Iowa-based startup that handles secure financial transactions, is moving into the public sector with its online and mobile payment system. Earlier this year, Iowa Gov. Terry E. Branstad announced the state would partner with Dwolla for the electronic payments for the Iowa state government.

The first project with the Iowa Department of Revenue will allow businesses, which already pay more than $100 million in cigarette stamp taxes, the option of paying via Dwolla. The electronic option is less expensive and safer than mailing and processing a paper check, Branstad said, and the efficiency of the system means participating businesses will receive their tax stamps quicker.

The governor said the state also will be identifying additional projects for Dwolla’s open, social, online and mobile payment platform in every level of state government — from collecting property taxes to issuing refunds, renewing vehicle registrations or paying government contractors.

One Iowa school district already uses Dwolla to let parents make online payments to a child’s lunch account, eliminating the need for parents to send checks or cash and allowing the school to avoid high transaction fees of using a credit card-based system.

Dwolla charges customers a flat 25 cents per transaction above $10, regardless of size, and is free for transactions $10 and under. It also provides VeriSign EVSSL security, set-up and mobile payment options.

Governments can save money by avoiding swipe fees for credit and debit cards, the company said. For example, $10 million in payments via credit card, with an average transaction of $40, would likely result in 2 percent to 5 percent in fees — a total of $200,000 to $500,000. That same amount would cost $62,500 with Dwolla.

MIT Technology Review said Dwolla’s system could have a significant impact, because of its "disruptive aim to create an electronic form of cash and rewire a crucial hub of the U.S. financial system."

Dwolla is aiming to expand its reach into the government market, getting state, local and possible federal agencies "to modernize their antiquated systems and make it easier for residents to interact with these bureaucracies," MIT Technology Review said.

About the Author

Greg Crowe is a former GCN staff writer who covered mobile technology.